Data Points: Growth Anticipated in 2010

Technomic recently revised its foodservice industry growth forecasts up for 2010. Previously, the forecast called for an overall sales decline of 1.6 percent, but based upon improving conditions, we have upgraded our outlook for a slight increase in growth of 0.6 percent. Many of the segments in which we’re seeing better-than-expected performance include casual and other full-service chains, hotels and recreation. To be sure, no one is exactly popping the Champagne bottles; one reason for our revised forecast is that the industry was down so much last year that any improvement in consumer spending will mean that the industry is growing, albeit off of a much lower base. In fact, we remain extremely concerned about many of the underlying macroeconomic indicators, and longer term growth will not be nearly as robust as what our industry saw five or even three years ago.

For many chain restaurant operators, the improving consumer demand comes at a critical time. Discounting and bundling have been primary tools for driving traffic to restaurants; low food and other input prices have allowed restaurants to remain somewhat profitable despite this discounting and the reduction in traffic. But with food costs expected to rise this year, and with other costs like gas also expected to increase, operators need to see some topline growth to remain healthy. Beverage can continue to play a role in driving sales and profits, but we believe alcohol sales will likely still lag overall restaurant sales, at least until the recovery becomes more entrenched.

To be sure, this “rising tide” won’t raise everyone. As consumers begin to return to restaurants, they’re still going to be cautious with their dollars and will be going to those places that provide a unique, differentiated experience. This means casual restaurants will need to keep working at doing a better job of showing why consumers should be coming back to their restaurants, not their competitors’ venues.